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Money mistakes to avoid when you are self-employed

Money mistakes to avoid when you are self-employed

NZ Herald4 days ago
Nearly 300,000 Kiwis are self-employed. Photo / 123rf
THE FACTS
No employer, no automatic KiwiSaver, no holiday pay, no sick leave. Just you, your income and the financial juggle. Ouch. Being self-employed comes with some real challenges.
Nearly 300,000 Kiwis are self-employed, such as small business owners and freelancers. Some will lurch from one financial crisis to the
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Construction Director And Engineer, Yang Kang Hong Qu, Selected As ACT Local Candidate For Hibiscus And Bays Local Board
Construction Director And Engineer, Yang Kang Hong Qu, Selected As ACT Local Candidate For Hibiscus And Bays Local Board

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Construction Director And Engineer, Yang Kang Hong Qu, Selected As ACT Local Candidate For Hibiscus And Bays Local Board

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As house prices drop, will the retirement nest egg still be such a safe bet?
As house prices drop, will the retirement nest egg still be such a safe bet?

RNZ News

time2 hours ago

  • RNZ News

As house prices drop, will the retirement nest egg still be such a safe bet?

By Claire Dale* of Photo: RNZ Changes to KiwiSaver , global economic uncertainty and predictions house prices could drop by as much as 20 percent by 2030 all mean retirement is looking very different to how it once did. A retirement strategy based on the equity held in a house is no longer as reliable as it has been in the past. Home ownership in Aotearoa New Zealand fell from 75 percent in 1991 to 60 percent in 2023 and is projected to fall to 48 percent in 2048. The average age of a first-home buyer has also risen to 36, meaning an increasing number of New Zealanders (13 percent) are paying off their mortgages after they reach retirement age. The number of retirees renting is also on the rise. By 2048, 40 percent of them will rent, placing pressure on New Zealand's housing stock. KiwiSaver is unlikely to replace the traditional housing nest egg. New Zealanders have, on average, $37,079 in their KiwiSaver accounts , with thousands of people reaching close to retirement age with less than $10,000 saved. The prospect of retirement looks bleakest for those currently aged between 35 and 49 years old. A recent report from credit agency Centrix found this group was struggling the most financially. A big part of the problem is that house prices skyrocketed just as they became first-time home buyers. The average asking price for residential property rose by 60.3 percent over the past decade, from $556,931 at the beginning of 2015 to $892,579 at the end of 2024. While incomes have also increased, they have not matched housing prices. In 2000, houses cost about five times the median household income. But by 2025, the median price had risen to 7.5 times the median household income. Those who bought their first home around the peak in 2021 are likely to be hit hardest by the forecast drop in house values. According to data insight firm Cotality (formerly Corelogic), nominal prices are expected to pass their 2021 peak by mid-2029. But when adjusted for inflation, prices in mid-2030 would be a fifth below the peak. Older New Zealanders are also facing significant housing pressures. According to a 2022 report from Treasury , over half of superannuitants still paying off mortgages spent more than 80 percent of their superannuation income on housing costs. Those who are mortgage-free are spending less than 20 percent of their super on housing. Between 2019 and 2024, the percentage of overdue mortgages for the 50+ age groups ranged between 2 percent and 2.5 percent, compared to a range of 1 percent to 1.5 percent for all mortgages. People between the age of 55 and 64 are likely to have purchased their homes in the late 1990s and early 2000s, so are less likely to be hurt by the 2021 peak and subsequent trough. Despite this apparent advantage, only 38 percent of people between 55 and 64 are mortgage free . The possibility of using accumulated KiwiSaver funds to clear a mortgage is also diminishing. As a result of the 2025 Budget changes to KiwiSaver, employee and employer contributions will rise from April 2026 to 3.5 percent and from April 2028 to 4 percent, offsetting the reduced annual government contribution. The end of employer contributions matters particularly to the 24 percent of those aged over 65 years who are still in the workforce. A rule change in 2021 means employers are not required to make contributions or to deduct employee contributions, unless the employee continues to make KiwiSaver contributions. But current global crises are affecting KiwiSaver returns. Uncertain and volatile markets, especially for actively managed funds, mean fund managers reallocate money to try to minimise losses. Not all their bets pay off. By 2030, Stats NZ projects that approximately 265,000 people aged 65 and over will be in the workforce. The Office for Seniors notes that although older workers have challenges finding and staying in paid work, a third of the workforce is aged over 50 and 50 percent of people aged 60 to 69 are employed. Importantly, as the Retirement Commission research found, a third of people over 65 were not working by choice. An increasing number , who neither own their home nor have significant retirement savings, have to continue working past 65 because they need the money to eat and pay the bills. As New Zealand's population ages, and more seniors have to work to pay for the essentials, it's clear retirement is going to look different. Betting on the value of a house to fund life after 65 is less certain than it used to be. More than ever, New Zealanders need to consider how they will live well in their later years. * Claire Dale is a research fellow at the Pensions and Intergenerational Equity (PIE) research hub, University of Auckland, Waipapa Taumata Rau * This story was first published on The Conversation .

'Dramatic shift' that could leave KiwiSaver members better off
'Dramatic shift' that could leave KiwiSaver members better off

RNZ News

time3 hours ago

  • RNZ News

'Dramatic shift' that could leave KiwiSaver members better off

Aggressive funds have returned 10.89 percent a year over five years, and 9.34 percent over 10 years. Photo: RNZ A "dramatic" shift of KiwiSaver investments into riskier funds should make New Zealanders better off in the long run, if past trends hold true. The Financial Markets Authority (FMA) released research this week noting the significant shift in risk of KiwiSaver investments. The proportion of KiwiSaver in funds that are risk category five, with high volatility, has quadrupled from 10 percent in 2021 to more than 40 percent in 2024. Riskier funds can be expected to be more volatile but over the long term should produce better results. They are generally recommended for investors who still have a significant period of time until they need to access their investments. Morningstar data shows that aggressive funds have returned 10.89 percent a year over five years, and 9.34 percent over 10 years. That is compared to 3.07 percent a year over 10 years for conservative funds, 4.47 percent for moderate funds, 6.18 percent for balanced and 7.68 percent for growth. Data director Greg Bunkall said cash investments' returns had lagged the rate of inflation over that time. The FMA said the proportion of KiwiSaver investments in lower risk funds dropped from 30 percent to 10 percent over the same 2021-to-2025 period. Part of this was due to the change to default funds, which now require them to be balanced. But it said there were other factors at play, too. "In the period prior to the Covid-19 global pandemic, interest rates were historically low, and inflation was low and stable. As a result, many fixed-income assets provided low returns. On the other hand, stock markets have performed very well in most years since 2017, and the few periods of weakness quickly reversed. "The strong performance and relative stability of stock markets may have therefore made higher-risk investments more attractive to investors. The persistence of this situation over several years may have contributed to the observed shift in preference for higher-risk investments, illustrating adaptive expectations among investors." It said market performance could also have affected the risk rating of funds. Spikes of volatility in 2020 and earlier this year affect funds' performance history. A number of providers have recently launched "high growth" funds that invest almost solely in equities. FMA director of markets, investors and reporting John Horner said the FMA was not necessarily implying that people were in the wrong fund or that providers were advising members towards higher-risk funds. "The observed increase in the risk categorisation of KiwiSaver funds appears to reflect a combination of factors including policy settings, investor behaviour, and market volatility. "KiwiSaver is a long-term savings regime for retirement, and for most long term investments a higher risk strategy will be appropriate. "We note that as KiwiSaver has been in existence for a while and become more mature there are more options available, including higher risk options, and there is also more material available to allow investors to educate or inform themselves about risk vs reward." Fisher Funds general manager of KiwiSaver David Boyle said the increase in investments in riskier funds was a good thing for investors wanting to grow retirement savings over the long term. He said consumers knew more about the role of growth assets in a long-term savings scheme like KiwiSaver. Fund mangers were responding to consumer interest and providing education on the risks and benefits of different fund types. Investors had experienced the Covid downturn and seen the recovery. "The advent of platforms that allow investors to build their own portfolios allows providers to launch single sector specialist offerings that are often at the riskier end of the spectrum." He said members still had choice and there were many lower-risk and savings options available. Booster chief executive Di Papadopoulos agreed New Zealanders were becoming more sophisticated in assessing their time horizons and figuring out if they could handle more risk to target higher returns. "It appears people are moving to higher risk funds that align with them not needing their KiwiSaver money for retirement anytime soon," she said. "At Booster, we have seen the benefit of these decisions. Moving from a balanced fund to a growth fund increases projected balances at retirement significantly. "A key factor is how soon or long in the future your might need to access your KiwiSaver, such as if you want to use it to buy your first home, or for your retirement. "If you're unsure about whether you are in the right fund it's a good idea to check in with a financial adviser." How much difference might your outlook be? Based on Sorted's retirement calculator… A 20-year-old joining KiwiSaver now with no investment, earning $60,000 and contributing 4 percent of their salary plus an employer's contribution of 4 percent could expect to have at 65: $381,354 in a balanced fund $477,814 in a growth fund $606,456 in an aggressive fund This accounts for inflation. Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.

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